Loss Mitigation Blog

Mounting foreclosures and a tanking economy have given rise to loss mitigation, a once-unknown industry where banks and borrowers work to minimize losses from defaults. Among the most common forms of loss mitigation today is loan modification, which involves negotiating with one’s lender for more comfortable mortgage terms. The process has helped as many as half a million troubled homeowners stay in their homes. But will it work for you? Here’s a quick guide to help you make the right choice.

How it works ?
The first thing you need is a loss mitigation attorney. Upon initial consultation, the firm will assess your situation to see whether loan modification is really your best choice, or if you’re better suited to another loss mitigation process.

Once you're qualified, they send an application to your bank along with financial documents which you will have to provide. This usually varies from lender to lender, but most banks will need the following:

    * a hardship letter explaining how you fell behind and how you can get back on track
    * financial documents such as bank statements and credit card bills
    * your latest mortgage bills
    * proof of income such as pay stubs
    * tax returns and W2 forms

Your loss mitigation attorney will then start negotiating with your bank to get the terms you want. The bank may agree to your request or give another offer, and it’s up to you and your lawyer to accept or keep negotiating. The loan modification process can take anywhere from 30 to 90 days, depending on your situation and how your bank responds.

Getting qualified
The best way to see if you qualify for loan modification is to ask your bank. Each lender has its own standards, and they tend to make decisions on a case-to-case basis. Contact your bank’s Loss Mitigation department and ask what your options are. They may offer various types of loan modification, such as the following:

    * Refinancing: taking out a new loan with easier terms to pay off the old one
    * Restructuring: moving some of the payments due to the end of the loan term
    * Principal reduction: forgiving part of the principal owed
    * Interest rate reduction: a decrease in the interest rate for the life of the loan
    * Term extension: extending the loan to lower monthly payments, or changing from an adjustable-rate to a 30-year fixed-rate mortgage